The Lloyds Bank Spending Power Report this month has seen consumer sentiment reach 123 points, an increase of 21 points from this time last year.

Confidence about the UK’s economic situation saw the greatest improvement over the course of the year, rising a total of 93 points from December 2012 to 206 points this month. However, the continued gains in confidence about the economic situation are not yet translating into improving sentiment about the personal financial situation, which has seen little change over the past 12 months.

This is despite essential spending growth easing further, to around 1% from approximately 1.5% last month, reducing the stretch on consumers’ pockets, and reflecting falling spending on fuel. Spending growth on gas and electricity bills remains high, at around 6.5% compared to last year, and remains a source of inflation concern for 79% of respondents. It is likely to ease in the coming months, reflecting the recently announced cuts to gas and electricity prices by some suppliers. Additionally, food prices were a source of inflation concern for 74% of respondents, likely reflecting consumer anxiety about food spending over the Christmas period.

Patrick Foley, chief economist at Lloyds Bank, said: “Consumer sentiment has firmed markedly over the course of 2013, reflecting the improving economic backdrop as the UK economy has emerged from its downturn, unemployment has fallen, and inflation has returned to the government’s target.

“Looking ahead, easing pressure on customer wallets bodes well for their ability to expand spending, and to support the recovery into 2014.”

The number of people feeling negative towards the country’s financial situation has increased this month, but remains broadly stable. Those who said that the country’s financial situation is ‘not good’ or ‘not good at all’ has increased this month from 76% in November to 77% in December. However, this is still a marked improvement from this time last year, with 91% of respondents in December 2012 stating that the country’s financial situation was ‘not good’ or ‘not good at all’.

55–64 year olds are the most pessimistic about the country’s current financial situation with 87% stating it is ‘not good’ or ‘not good at all’, while 25–34 year olds are the most optimistic age group, with 33% of respondents having a positive outlook.

While positive sentiment towards the current housing market decreased by one point in December to 41%, this level is almost double what it was this time last year (23%), an improvement largely driven by those stating it is ‘somewhat good’. While those in Greater London have the highest overall postive view (45%), 19% of consumers in Greater London feel the housing market is ‘not good at all’ the third highest score after Scotland (24%) and North West (21%).

Despite a slight one point decrease in December in consumer sentiment towards the employment market, with 29% of respondents saying it is ‘not good at all’, this is well below the levels seen in December 2012, when negative sentiment stood at 42%, chiming with recent falls in unemployment.

Similarly, while consumers who report an overall positive view of the UK employment market fell by two points last month to 23% in December, this figure has more than doubled since December 2011, which reported a 11 point overall positive sentiment.

Consumers negative sentiment towards their own personal finances remains relatively stable with 46% of respondents still saying they are ‘not good’ or ‘not good at all’, a 1% decrease from last month. This is little changed from the same time last year, which reported a 48% overall negative sentiment. Those aged 65 and over have the most positive view of their personal finances, with 68% saying they are ‘excellent’, ‘very good’ or ‘somewhat good’, while those living in Greater London continue to have the most positive view, with 18% saying that it is ‘very good’ or ‘excellent’, a four point increase from last month.